Some of the Revlon creditors that were accidentally sent more than $900 million by Citigroup asked a federal appeals court for a rehearing, after it ruled that they had to give the money back.
The lenders — which include Brigade Capital Management, HPS Investment Partners and Symphony Asset Management — asked the 2nd U.S. Circuit Court of Appeals on Thursday to have a larger group of judges review the decision by a three-judge panel this month. That decision reversed a lower-court ruling that they could keep $504 million the bank mistakenly wired them in 2020. Some of the lenders had given the money back.
The panel's decision, in a case that became the talk of Wall Street, was a redemptive win for Citigroup's main banking unit in its efforts to redress the embarrassing blunder, which forced the bank to explain to regulators how such a failure was possible.
'Discharge for value'
The legal dispute turns on the "discharge for value" defense, established by a 1991 New York court ruling that creditors can keep money sent to them in error if they didn't realize the payment was a mistake. The lenders said the appellate panel's decision "unsettled previously established New York law, such that parties in financial transactions can only wonder whether the New York state courts will adopt this court's newly crafted exceptions to the discharge-for-value rule."
Citigroup said the panel got it right.
"The Second Circuit's unanimous and highly detailed decision is supported by strong legal analysis and reaffirms our long-held belief that these mistakenly transferred funds should be returned as a matter of law, as well as ethics," spokeswoman Danielle Romero-Apsilos said in a statement.
Lawyers for the lenders didn't immediately respond to messages seeking comment.
Tricky bid
Bloomberg Intelligence senior litigation analyst Elliott Stein said he would be surprised if the appeals court grants the lenders' request for an en banc, or fuller court, review.
"I can't see a majority of judges on the 2nd Circuit disagreeing with the panel," Stein said. "And even if the circuit would normally consider reviewing this en banc in light of the importance of the issues, it's unlikely to want to lengthen the case even more in light of Revlon's bankruptcy proceedings."
Citigroup, which was acting as administrative agent on the loan in question, was trying to send an interest payment to Revlon lenders but instead accidentally paid off all the creditors on the loan. It managed to recover almost half the funds, but others refused to give their sums back, saying Revlon had already defaulted and should have repaid them.
The case is Citibank NA v. Brigade Capital Management LP, 21-487, 2nd U.S. Circuit Court of Appeals (Manhattan).
— With assistance from Jenny Surane and Katherine Doherty.
